EU Commission proposes climate resilience framework, highlights cat bonds & reinsurance

The European Commission has called for a new climate resilience framework to strengthen Europe’s ability to anticipate, prepare for, and manage climate risks. The initiative calls for the establishment of a Climate Insurance Alliance, to improve coverage, drive risk prevention and encourage greater use of reinsurance and catastrophe bonds to close protection gaps.

According to the European Commission proposal, estimated economic losses from climate-related damages from 2022 to 2025 stood at approximately €200 billion, or €50 billion per year.

“The EU Climate Resilience Framework aims to strengthen Europe’s ability to anticipate, prepare for, and manage climate risks by getting ahead of those impacts and avoiding damages through coordinated action at EU, national and local levels,” the Commission explained.

Adding: “This more proactive and systemic approach will embed climate resilience by design across key policies and borders. The Framework combines a proposed European Climate Resilience Law with practical tools and supporting measures to help public authorities, businesses, and other stakeholders make better-informed decisions.”

As mentioned, the proposal explains that the European Commission will set up a Climate Insurance Alliance, to help improve insurance protection and support risk prevention across Europe.

According to the Commission, the Alliance will bring together insurers, reinsurers, insurance intermediaries, insurance takers, risk modelling experts, investors, the European Insurance and Occupational Pensions Authority (EIOPA) and public authorities.

By the end of 2027, the Alliance aims to deliver its first set of actionable measures, which includes increasing insurance uptake by supporting demand through adequate solutions, including measures to increase risk awareness, transparency on insurance policies, facilitating quick payouts, through the use of parametric insurance solutions, and promoting availability, affordability and adequacy of insurance products.

The Alliance will also focus on incentivising risk prevention by promoting insurance products that encourage risk mitigation, as well as evaluating data availability and sharing to support and enhance risk modeling.

Most relevant to Artemis readers, however, is the proposal’s call for the Alliance to assess Europe’s natural catastrophe insurance capacity to cover natural catastrophe risks, specifically examining the potential for greater use of reinsurance and catastrophe bonds.

There have been active discussions for a few years now regarding the increased use of catastrophe bonds in Europe, as climate change continuously threatens to widen the continent’s protection gap.

In 2023, a discussion paper from the European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) highlighted the potential for increased use of catastrophe bonds to support the supply of catastrophe insurance across the European Union (EU).

In addition, an ECB executive also previously underscored that deeper cat bond markets could play an important role towards tackling the climate insurance protection gap in Europe.

Previous research reports from the World Bank Group and European Commission have also called on governments across the EU to utilise more ways in which disaster risk transfer and insurance can help reduce the pressure from weather and natural perils on budgets, including the use of catastrophe bonds.

In late 2023, the ECB alongside a macro-prudential oversight body it operates, the European Systemic Risk Board (ESRB), called for greater use of catastrophe bonds to address the insurance protection gap and mitigate catastrophe risks from climate change in the European Union.

In 2024, another proposal published by the ECB and the EIOPA also called for a two-pillar solution to be designed that would provide an EU-level approach to help reduce the insurance protection gap for natural catastrophes, including through the use of pooling private risks, strengthening disaster risk management, and utilising the catastrophe bond market to support catastrophe reinsurance availability across Europe.

“Europe is warming at double the global rate. To become truly climate resilient, we need to adjust and learn along the way. Today, we are presenting a European approach to climate risks – to anticipate, to prepare for and to manage. We are ensuring that climate resilience will be included in policies across the continent, supporting investment, innovation and long-term growth,” said Ursula von der Leyen, President of the European Commission.

“The first and most effective adaptation measure to climate change is to fight its root causes. But even as we work hard to reduce emissions, we must prepare for the impacts of climate change, which are neither fair nor equally distributed. Europe lacks preparedness, and it is our responsibility to minimise the costs and suffering this entails. This is why we propose using a common global warming trajectory to assess risks and prepare for the future. The Framework will strengthen preparedness, clarify responsibilities and equip public authorities, businesses and communities with practical tools to act, paying particular attention to the most vulnerable. Climate resilience is a shared obligation, and the European Commission is ready to play its part in building a more resilient and fairer Europe,” added Teresa Ribera, Executive Vice-President for Clean, Just and Competitive Transition.

“Europe’s future competitiveness depends on our ability to anticipate and prepare for a changing climate. Our society and economy need to become ‘resilient by design’ or we’ll risk disaster by default. Every euro invested in resilience today helps protect jobs, businesses and livelihoods tomorrow. This new Framework will help us build a more resilient and competitive economy, while ensuring that no region or community is left behind,” commented Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth.